COLLIERS International Philippines sees Cebu’s total office supply breaching one million square meters (sq.m) this year.
The rise of offshore gambling in the country is seen to drive leasing activity in Cebu’s office sector, the research firm said.
In a study conducted by the firm, offshore gambling accounted for almost 25 percent of recorded transactions of Cebu’s office sector in 2017. Total office transactions reached nearly 107,000 sq.m last year.
Although, office leasing in Cebu is still dominated by voice companies, which cover more than half of transactions, and knowledge process outsourcing firms taking 20 percent of total office leases, Colliers Philippines said offshore gambling is emerging as a critical segment of Cebu’s office market.
“In Manila, offshore gambling is driving the leasing activity of properties, which also have condominium components. And with the continued rise, we expect the same trend to replicate here,” said Joey Roi Bondoc, research manager at Colliers Philippines.
The report said offshore gambling is emerging as a major plank of the Cebu office market. After taking up 25,000 square meters (sq.m) of office space in the first half of 2017, another offshore gambling company closed nearly 3,700 sq.m of office space at the Momentum Building.
Colliers Philippines sees a greater absorption from the offshore gambling sector over the next two to three years, provided local government units extend a conducive local regulatory environment for this kind of business.
Bondoc advised property developers, who offer their spaces for this new sector, to consider erecting condominiums to complement their needs.
“These tenants need rooms for their workers,” he said.
Office demand from KPO and business process management (BPM) firms should sustain at least 10 percent annual growth in transactions until 2020.
Cebu’s office stock reached 960,000 sq.m of gross leasable area as of 2017, up by seven percent from about 897,000 sq.m in 2016.
Some 63,000 sq.m of office space was completed last year.
Cebu Business Park (CBP) accounted for more than half of the new office space following the delivery of Philamlife Center, BPI Corporate Center, and Buildcomm Centre.
Two other buildings completed last year were King Properties’ Avenir and Oakridge IT Center 2 in Mandaue City.
Bondoc said they see Cebu’s total office supply to breach one million sq.m this year.
Between 2018 and 2020, they expect the completion of close to 400,000 sq.m of new office space.
A combined 60 percent of new supply will be in Cebu Business Park and Cebu IT Park.
In terms of vacancy, it stood at 9.7 percent as of 2017, lower by 12 percent from the 2016 levels.
Colliers Philippines sees overall vacancy rising to about 10 to 11 percent annually over the next two to three years due to the completion of new spaces.
As for rental rates, the research firm expects CBP and Cebu IT Park to continue to command the highest lease rates across Metro Cebu.
“We project average lease rates in these sub-markets to grow between three percent and five percent annually from 2018 to 2020. We still see upward pressure in rent given the strong demand in these sub-locations,” said Colliers Philippines.
Lease rates in other districts might grow at a slower two to three percent per head, as some landlords scramble to fill available space.
Colliers Philippines sees the government’s Build, Build, Build infrastructure program and decentralization thrust to benefit Cebu. It said this should entice more offshore gambling, BPM, KPO and traditional firms to setup shop or expand operations.
“We encourage both landlords and tenants to explore business opportunities within the Call Center City that the local government proposes to develop with the private sector; build office space that could accommodate non-outsourcing and traditional businesses that require smaller cuts; assess the needs of offshore gambling; and open more flexible workspace,” the research firm said.
It added that property players should also start developing projects in Mandaue and Mactan, in anticipation of the demand from the completion of the expanded Mactan- Cebu International Airport, Cebu-Cordova Expressway Link, Cebu Bus Rapid Transit, and Cebu-Negros bridge.